In investments, frequently named categories include stocks, bonds, cash, commodities, REITS, etc. These sectors sometimes rise or fall similarly. They can be somewhat correlated.
A universal suggestion among financial advisors is to diversify. Invest in different categories.
So what about forestland as investment diversification? That, usually, is not in lockstep with other assets.
Stocks, are good over the long haul, returning about 9 percent or so annually. But remember the bear markets of 2000 and 2008 when minus 50 percent traumatized investors.
Bonds are good for diversity, but yielding a pittance now, and cash returns are near zero. Gold has made its run. And oil has been depressed for years.
Forestland has some admirable qualities.
Land in general appreciates over time. I think at least more than inflation. No irrational exuberance here, unless perhaps you see a “muy grande” while inspecting the property. Trees grow, as I remember, perhaps 4 percent annually. As a general rule of thumb in a pine plantation, landowners can expect about $250 per acre for a first thinning, $500 per acre for a second thinning and $1,000 to 1,200 per acre for a final harvest. Of course these values are market dependent.
There are also possibilities of oil and gas revenue.
An important provision of owning your own land is you can recreate on it, check out the birds, hunt, relax, contemplate, etc. Or you can lease all or part out to others for this. Generally hunting leases in Louisiana range from about $5 to $15 per acre per year, but it can vary greatly depending on the property. That usually is enough to pay the taxes, plus. Standing timber, markets, future potential, other income and accessibility are considerations in assessing value.
Forestland has very admirable features that other assets lack. Growing trees sequester carbon, particularly important in an era of concern about emissions of greenhouse gases. That’s going green for real, not just some slogan. Forestland is a living ecosystem, with components you can identify with. Trees, birds and deer are things you care for. Living and breathing land is something you can love. It’s different than data on a screen representing something. Forest landowners don’t anguish over CEOs whose companies are losing money while they make millions a year and sometimes more when they exit with their golden parachute.
The future? Nobody knows. Economic models require evaluation of value of future assets, but precision is impossible. Think of world wars, social disorder, conflicts and change of the world’s order. Think of past discovery of subsurface assets: coal, oil and gas, and their relevance to forestland values. Louisiana’s subsurface mineral laws are relevant. If there is no extraction within 10 years mineral rights revert to the surface landowner. What’s coming down the pike?
What about different markets for wood? Wood is easy to grow.
I bought into investing in forestland and here is my personal experience. I won’t bog readers down with detailed economic data.
Texas: My first land purchase and the only one I have sold. In the late 1970s, I bought 77 acres of worn out farmland and timber for $700 per acre. I covered my cost with timber harvest, hunting leases, payments from the Conservation Reserve Program for 40 acres, and two thinnings from the pine plantation in CRP.
I sold it recently for $3,000 per acre. Not a bad deal. I rolled the capital gains into a 1031 land swap in the purchase of a Wetland Reserve Program (WRP) tract in Louisiana.
Butte 40: This was cut over, deeply rutted and isolated. It took imagination to envision the future condition, but the price was right at $550 per acre. In a tour with friend Harry Cook, we almost overturned the 4-wheeler, the ruts were so deep. His suggestion was buy it, and I did. It got dry enough for me to harvest the overstory pines on a small part, and I now have a maturing hardwood stand. On this 40 acres I have deer, turkeys sometimes, squirrels, a bear sometimes, and ducks adjacent. Not bad.
Cypress 80: This one is mostly in the turkey creek bottom south of Winnsboro. The hillside would make a beautiful home site. I lease it for deer but keep the duck hunting rights, which have been spotty. I probably won’t make much on this one, but I like having a cypress swamp.
Bear claw marks punctuate the big hollow cypress. Prothonotary warblers and a host of other bottomland bird species also make it a special habitat.
Corney 160: My son John and I bought this. The lowest part is a duck hole in the edge of the Corney bottom. This transitions into bottomland hardwoods. The stand has been high-graded, but the hardwoods are still growing and at some point will have real value.
The small upland part is a pine plantation where we have had one thinning. This bottomland grows good deer. We lease the deer hunting but retain duck hunting rights. Future value? Who knows, but we like our chances and the duck dividends are good.
Jones: This is a 302 acre Wetland Reserve Program tract. I wanted to be a part of restoration of the almost eliminated bottomland hardwood forests. It is about equal parts shallow water impoundments and young hardwood stands. The maintenance takes a bit of effort, largely assumed by my son John. I cannot harvest crops or trees now, but I enjoy seeing the young stands develop. The bird community is transitioning from early successional species, such as yellow-breasted chats and indigo buntings, to later stage bottomland species, such as Kentucky and Swainson’s warblers.
I get my main investment dividend in duck hunting. A pleasant surprise has been the occasional mottled duck that we get. They are considered a permanent resident coastal marsh species. It appears there is a local population in northeast Louisiana. I wonder if they nest on my property. Other noteworthy investment dividends include: quality deer hunting, providing bottomland hardwood and wading bird habitat, and crawfish. Crawfish are my provision for sustenance in case of cataclysmic events.
So, think about forestland as an investment. Its value is likely to increase and you take real pride in your investment dividends in experiences you cannot get from Wall Street.
(Dr. James G. Dickson is an award-winning author, researcher, wildlife biologist and professor, USDA Forest Servics Southern Research Station Scientist Emeritus and LFA Director Emeritus. Email him at email@example.com.)